Test bank cost accounting 14e horgren chapter 13

Answer: D Diff: 2 Terms: reengineering Objective: 2 AACSB: Reflective thinking 3 The balanced scorecard measures an organization's performance from all of the following AACSB: Reflective

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Cost Accounting, 14e (Horngren/Datar/Rajan)

Chapter 13 Strategy, Balanced Scorecard, and Strategic Profitability Analysis

AACSB: Reflective thinking

2) In general, profit potential with greater competition, stronger potential entrants, products that are similar, and more-demanding customers and suppliers

3) Which of the following is NOT a force that shapes an organization's profit potential?

A) Competitors

B) Equivalent products

C) Bargaining power of input suppliers

D) All of these answers are correct

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4) Which of the following is a force that shapes an organization's profit potential?

5) is an organization's ability to offer products or services that are perceived by its customers

as being superior and unique relative to those of its competitors

6) is an organization's ability to achieve low costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control

7) An organization that is using the product differentiation approach would:

A) focus on tight cost control

B) carefully cultivate their brands

C) provide products that are similar to competitors

D) offer products at a lower cost than competitors

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8) An organization that is using the cost leadership approach would:

A) incur costs for innovative R&D

B) provide products at a higher cost than competitors

C) focus on productivity through efficiency improvements

D) bring products to market rapidly

Answer: C

Diff: 2

Terms: cost leadership

Objective: 1

Answer the following questions using the information below:

Stewart Corporation plans to grow by offering a sound system, the SS3000, that is superior and unique from the competition Stewart believes that putting additional resources into R&D and staying ahead of the competition with technological innovations is critical to implementing its strategy

9) Stewart's strategy is:

Riter Corporation manufactures water toys It plans to grow by producing high-quality water toys at a low cost that are delivered in a timely manner There are a number of other manufacturers who produce similar water toys Riter believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy

10) Riter's strategy is:

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Meale Company makes a household appliance with model number X500 The goal for 2012 is to reduce direct materials usage per unit No defective units are currently produced Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced The industry market size for appliances increased 10% from 2011 to 2012 The following additional data are available for 2011 and 2012:

Units of X500 produced and sold 10,000 11,000

Direct material costs per square foot $10 $11

Manufacturing capacity for X500 (units) 12,500 12,000

Conversion costs per unit of capacity $20 $20

11) Which strategy is Meale's Corporation pursuing?

A) Product differentiation, because the units produced and sold increased

B) Product differentiation, because total conversion costs decreased

C) Cost leadership, because direct material costs per square foot increased

D) Cost leadership, because the selling price decreased

Answer: D

Diff: 2

Objective: 1

AACSB: Analytical skills

12) Strategy describes how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its overall objectives

Answer: TRUE

Diff: 1

Terms: total quality management (TQM)

Objective: 1

13) One of the five forces of industry analysis is understanding the bargaining power of your input suppliers

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14) Product differentiation is an organization’’s ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control

15) Product differentiation is an organization’’s ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors

Answer: TRUE

Diff: 1

Terms: product differentiation

Objective: 1

16) The cost leadership strategy is for products and services that are similar to competitor's products and services

Answer: TRUE

Diff: 1

Objective: 1

17) The product differentiation strategy is probably best for a company if the engineering staff is more skilled at making process improvements than at creatively designing new products

Answer: FALSE

Explanation: The cost leadership strategy is probably best for a company if the engineering staff is

more skilled at making process improvements than at creatively designing new products

Diff: 2

Terms: product differentiation

Objective: 1

18) In general, profit potential increases with greater competition, stronger potential entrants, products that are similar, and tougher customers and suppliers

Answer: FALSE

Explanation: In general, profit potential decreases with greater competition, stronger potential entrants,

products that are similar, and tougher customers and suppliers

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19) Bosely Corporation is reviewing its business strategy The first step for Bosely is to perform an industry analysis You have been hired to help the company go through the strategy formulation process

Required:

To perform the industry analysis, what areas should Bosely focus on and give at least one example of how Bosely can effectively deal with each area

Answer: The industry analysis is composed of five areas:

1 Competitors - How competitive is the industry for Bosely's particular product ? They can

differentiate the product to reduce competition

2 Potential entrants to the market - How easy is it for new competitors to join the market? Create barriers to entry, such as high capital requirements

3 Equivalent products - Is there a substitute product available? Make continuous product

improvements to reduce likelihood of equivalent products

4 Bargaining power of customers - How many suppliers can customers access? Try to negotiate term purchase agreements

long-5 Bargaining power of input suppliers - How many raw material vendors are there? Try to find

alternative suppliers and negotiate the best price for raw materials

Diff: 3

Terms: five force industry analysis

Objective: 1

20) Explain the product differentiation and the cost leadership strategies

Answer: Product differentiation is an organization's ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors

Cost leadership is an organization's ability to achieve lower costs relative to competitors through

productivity and efficiency improvements, elimination of waste, and tight cost control

1) is the fundamental rethinking and redesign of business processes to achieve improvements

in critical measures of performance such as cost, quality, service, speed, and customer satisfaction A) Strategy

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2) Successful reengineering involves:

A) cutting across functional lines to focus on the entire business process

B) redefining the roles and responsibilities of employees

C) using information technology

Answer: D

Diff: 2

Terms: reengineering

Objective: 2

3) The balanced scorecard measures an organization's performance from all of the following

4) Reengineering is the fundamental rethinking and redesign of business processes to achieve

improvements in critical measures of performance such as cost, quality, service, speed, and customer satisfaction

Answer: TRUE

Diff: 1

Objective: 2

5) Reengineering benefits are most significant when they focus on one business function rather than crossing functional lines of the business process

Answer: FALSE

Explanation: Reengineering benefits are most significant when they cut across functional lines to focus

on the entire business process

Diff: 2

Objective: 2

6) Successful reengineering efforts generally involve changing the roles and responsibilities of

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7) What is reengineering Can you contrast a reengineering approach to change with a kaizen approach

2) The purpose of the balanced scorecard is best described as helping an organization:

A) develop customer relations

B) mobilize employee skills for continuous improvements in processing capabilities, quality, and response times

C) introduce innovative products and services desired by target customers

D) translate an organization's mission and strategy into a set of performance measures that help to implement the strategy

Answer: D

Diff: 3

Terms: Balanced Scorecard

Objective: 3

3) The first step to successful balanced scorecard implementation is clarifying the:

A) organization's vision and strategy

B) elements that pertain to value-added aspects of the business

C) owner's expectations about return on investment

D) objectives of all four balanced scorecard measurement perspectives

Answer: A

Diff: 3

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4) The balanced scorecard is said to be "balanced" because it measures:

A) short-term and long-term objectives

B) financial and nonfinancial objectives

C) internal and external objectives

Answer: D

Diff: 2

Objective: 3

5) Balanced scorecard objectives are in balance when:

A) debits equal credits

B) financial performance measurements are less than the majority of measurements

C) the measurements are fair

D) the measurements reflect an improvement over the previous year

Answer: B

Diff: 3

Objective: 3

6) The internal business processes perspective of the balanced scorecard comprises three subprocesses that address all of the following EXCEPT:

A) innovative processes used to create new products, services, and processes

B) motivating current employees

C) providing service and support to the customer after the sale

D) delivering existing products and services to best meet the needs of customers

Answer: B

Diff: 3

Objective: 3

7) Identify the best description of the balanced scorecard's financial perspective To achieve our firm's vision and strategy:

A) how can we obtain greater profits for the current year?

B) how can we increase shareholder value?

C) how will we obtain continuous improvements?

D) how can we secure greater customer satisfaction?

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8) Identify the best description of the balanced scorecard's internal business processes perspective To achieve our firm's vision and strategy:

A) how do we lower costs?

B) how do we motivate employees?

C) how can we obtain greater profits?

D) what processes will increase value to customers?

Answer: D

Diff: 3

Objective: 3

9) All of the following relate to the balanced scorecard's learning and growth perspective EXCEPT: A) How do we achieve greater employee satisfaction?

B) What new products do we create?

C) How do we provide information systems with updated technology?

D) How will we motivate and empower our employees?

Answer: B

Diff: 3

Objective: 3

10) Measures of the balanced scorecard's financial perspective include:

A) information system availability

B) number of new patents

11) Measures of the balanced scorecard's financial perspective include all of the following EXCEPT: A) operating income

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12) Measures of the balanced scorecard's customer perspective include:

A) market share

B) number of on-time deliveries

C) number of process improvements

13) Measures of the balanced scorecard's customer perspective include all of the following EXCEPT: A) market share

B) customer satisfaction

C) number of new customers

D) customer training on new products

Answer: D

Diff: 3

Objective: 3

14) Measures of the balanced scorecard's internal-business-process perspective include:

15) Measures of the balanced scorecard's internal-business-process perspective include all of the following EXCEPT:

A) operating capabilities

B) number of new products

C) employee turnover rates

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16) Measures of the balanced scorecard's learning-and-growth perspective include:

A) employee satisfaction ratings

B) economic value added

C) time taken to deliver product to customers

17) Measures of the balanced scorecard's learning-and-growth perspective include all of the following EXCEPT:

A) employee education and skill level

B) percentage of processes with advanced controls

18) Which of the following is NOT true of a good balanced scorecard?

A) It tells the story of a company's strategy by articulating a sequence of cause-and-effect relationships B) It helps to communicate corporate strategy to all members of the organization

C) It identifies all measures, whether significant or small, that help to implement strategy

D) It uses nonfinancial measures to serve as leading indicators of future financial performance

Answer: C

Diff: 3

Objective: 3

19) Which of the following is NOT true of the balanced scorecard?

A) Different strategies call for different scorecards

B) Successful implementation requires commitment and leadership from top management

C) Only objective measures should be used and subjective measures should be avoided

D) Cause-and-effect linkages may not be precise and should evolve over time

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20) The return-on-investment ratio is an example of a balanced-scorecard measure of the:

A) internal business process perspective

21) The number of complaints about a product is an example of a balanced-scorecard measure of the: A) internal business process perspective

22) Manufacturing cycle efficiency is an example of a balanced-scorecard measure of the:

23) Surveys of employee satisfaction is an example of a balanced-scorecard measure of the:

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Stewart Corporation plans to grow by offering a sound system, the SS3000, that is superior and unique from the competition Stewart believes that putting additional resources into R&D and staying ahead of the competition with technological innovations is critical to implementing its strategy

24) To further company strategy, measures on the balanced scorecard would most likely include: A) number of process improvements

Riter Corporation manufactures water toys It plans to grow by producing high-quality water toys at a low cost that are delivered in a timely manner There are a number of other manufacturers who produce similar water toys Riter believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy

25) To further company strategy, measures on the balanced scorecard would most likely include: A) number of process improvements

B) price premium earned

C) longer cycle times

D) an increase in operating income from increased profit margins

Answer: A

Diff: 3

Objective: 3

26) Managers need to evaluate the success of a strategy by:

A) evaluating budget-to-actual variances

B) doing a cost-benefit analysis

C) linking the sources of operating-income increases to the strategy

D) evaluating the level of bonus compensation

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27) The balanced scorecard translates an organization's mission and strategy into a set of performance measures that provides the framework for implementing its strategy

Answer: TRUE

Diff: 2

Objective: 3

28) The balanced scorecard uses financial and nonfinancial performance measures to evaluate short-run and long-run performance in a single report

Answer: TRUE

Diff: 2

Objective: 3

29) In for-profit companies, the primary goal of the balanced scorecard is to sustain short-run financial performance

30) To achieve success, it is important to set nonfinancial objectives as well as financial objectives Answer: TRUE

Diff: 2

Objective: 3

31) A strategy map is a diagram that describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationships with each other in the financial, customer, internal business process, and learning and growth perspectives

Answer: TRUE

Diff: 2

Terms: strategy map

Objective: 3

32) The customer perspective of the balanced scorecard evaluates the profitability of the strategy Answer: FALSE

Explanation: The financial perspective of the balanced scorecard evaluates the profitability of the

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33) Employee satisfaction is a measure of the internal business perspective of the balanced scorecard Answer: FALSE

Explanation: Employee satisfaction is a measure of the learning and growth perspective

Diff: 2

Objective: 3

AACSB: Communication

34) The financial perspective of the balanced scorecard identifies targeted customers and market

segments and measures the company's success in these segments

36) When implementing a balanced scorecard, the cause-and-effect linkages are always precise

37) Different strategies call for different scorecards

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38) Buck Corporation plans to grow by offering a computer monitor, the CM3000 that is superior and unique from the competition Buck believes that putting additional resources into R&D and staying ahead of the competition with technological innovations are critical to implementing its strategy

Required:

a Is Buck's strategy one of product differentiation or cost leadership? Explain briefly

Identify at least one key element that you would expect to see included in the balanced scorecard:

b for the financial perspective

c for the customer perspective

d for the internal business process perspective

e for the learning and growth perspective

b operating income growth from charging higher margins for CM3000 for the financial perspective

c market share in the high-end monitor market, customer satisfaction, and new customers for the customer perspective

d manufacturing quality, new product features added, and order delivery time for the internal business perspective

e development time for new features, improvements in manufacturing technologies, employee

education and skill levels, and employee satisfaction for the learning and growth perspective

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39) Maloney Corporation manufactures plastic water bottles It plans to grow by producing high-quality water bottles at a low cost that are delivered in a timely manner There are a number of other

manufacturers who produce similar water bottles Maloney believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy

Required:

a Is Maloney's strategy one of product differentiation or cost leadership? Explain briefly

Identify at least one key element that you would expect to see included in the balanced scorecard:

b for the financial perspective

c for the customer perspective

d for the internal business process perspective

e for the learning and growth perspective

b operating income growth from productivity gains and growth for the financial perspective

c growth in market share, new customers, customer responsiveness, and customer satisfaction for the customer perspective

d yield, time to complete customer jobs, and order delivery time for the internal business perspective

e number of process improvements, hours of employee training, and employee satisfaction for the learning and growth perspective

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40) For each of the following measures, identify which perspective of the balanced scorecard it represents: financial, customer, internal-business-process, or learning-and growth

1 service response time

2 market share

3 gross margin percentage

4 defect rates

5 customer satisfaction

6 information system availability

7 new-product development time

8 economic value added

41) What is the primary purpose of the balanced scorecard?

Answer: The primary purpose of the balanced scorecard is to translate an organization's mission and strategy into a set of performance measures that put that strategy into action with clearly-stated objectives, measures, targets, and initiatives

Diff: 2

Objective: 3

42) What are the four key perspectives in the balanced scorecard?

Answer: The four key perspectives in the balanced scorecard are:

a the financial perspective,

b the customer perspective,

c the internal business processes perspective, and

d the learning and growth perspective

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Objective 13.4

1) Which component of strategy measures the changes in operating income attributed solely to an increase in the quantity of output between Year 1 and Year 2?

A) the growth component

B) the price-recovery component

C) the productivity component

D) the cost leadership component

Answer: A

Diff: 1

Terms: growth component

Objective: 4

2) Which component of strategy measures the change in operating income attributable solely to changes

in a company's profit margins between Year 1 and Year 2?

Answer: B

Diff: 1

Terms: price-recovery component

Objective: 4

3) Which component of strategy measures the reduction in costs attributable to a reduction in the

quantity of inputs used in Year 2 relative to the quantity of inputs that would have been used in Year 1

to produce the Year 2 output?

Answer: C

Diff: 1

Terms: productivity component

Objective: 4

4) When analyzing the change in operating income, the strategy component of growth:

A) calculations are similar to the selling-price variance calculations

B) isolates the change attributed solely to an increase in market share

C) isolates the change attributed solely to an increase in industry growth

D) isolates the change attributed solely to an increase in the quantity of units sold

Answer: D

Diff: 3

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5) When analyzing the change in operating income, the strategy component of price-recovery: A) calculations are similar to the efficiency-variance calculations

B) compares the change in output price with the changes in input prices

C) will report a large positive amount when a company has successfully pursued the cost leadership strategy

D) isolates the change attributed solely to an increase in production efficiencies

Answer: B

Diff: 3

Terms: price-recovery component

Objective: 4

6) When analyzing the change in operating income, the strategy component of productivity:

A) calculations are similar to the sales-volume variance calculations

B) compares the change in output price with the changes in input prices

C) will report a large positive amount when a company has successfully pursued the cost leadership strategy

D) isolates the change attributed solely to an increase in the quantity of units sold

Answer: C

Diff: 3

Objective: 4

7) When analyzing the change in operating income, the strategy component of growth will increase when:

A) capacity is reduced

B) production efficiencies are successfully implemented

C) selling prices are increased

D) more units are sold

Answer: D

Diff: 3

Terms: growth component

Objective: 4

8) When analyzing the change in operating income, the strategy component of price-recovery will increase when:

B) production efficiencies are successfully implemented

D) more units are sold

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9) When analyzing the change in operating income, the strategy component of productivity will increase when:

B) quality is enhanced

D) more units are produced and sold

Answer: A

Diff: 3

Objective: 4

10) Successful implementation of a cost leadership strategy will result in:

A) large favorable growth and price-recovery components

B) large favorable price-recovery and productivity components

C) large favorable productivity and growth components

D) only a large favorable growth component

Answer: C

Diff: 3

Terms: productivity component, growth component, cost leadership

Objective: 4

11) Successful implementation of a product differentiation strategy will result in:

A) a large favorable growth and price-recovery components

B) a large favorable price-recovery and productivity components

C) a large favorable productivity and growth components

D) only a large favorable growth component

Answer: A

Diff: 3

Terms: growth component, price-recovery component, product differentiation

Objective: 4

12) The revenue effect of growth is calculated by multiplying the difference in units sold (current year minus the previous year) by

A) selling price in the current year

B) selling price in the previous year

C) gross profit in the previous year

D) gross profit in the current year

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13) The revenue effect of price recovery is calculated by multiplying the difference in selling price (current year minus the previous year) by

A) actual units sold in the current year

B) budgeted units sold in the previous year

C) budgeted units sold in the current year

D) actual units sold in the previous year

Answer: A

Diff: 3

Terms: growth component, price-recovery component, productivity component

Objective: 4

14) An operating income analysis of Paul Reynolds Incorporated revealed the following:

Operating income for 2012 $1,500,000

Deduct price-recovery component (45,000)

Add productivity component 60,000

Reynolds' operating income gain is consistent with the:

A) product differentiation strategy

15) An operating income analysis of Deb Nunn Incorporated revealed the following:

Add price-recovery component 200,000

Deduct productivity component (24,000)

Nunn's operating income gain is consistent with the:

A) product differentiation strategy

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Meale Company makes a household appliance with model number X500 The goal for 2012 is to reduce direct materials usage per unit No defective units are currently produced Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced The industry market size for appliances increased 10% from 2011 to 2012 The following additional data are available for 2011 and 2012:

16) What is operating income for 2011?

17) What is operating income for 2012?

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18) Overall, was Meale's strategy successful in 2012?

A) No, because the selling price per unit decreased

B) Yes, because operating income increased

C) Yes, because less direct materials were used

D) No, because more units were produced and sold

Merrill Company makes a household appliance with model number X800 The goal for 2012 is to reduce direct materials usage per unit No defective units are currently produced Manufacturing

conversion costs depend on production capacity defined in terms of X800 units that can be produced The industry market size for appliances increased 5% from 2011 to 2012 The following additional data are available for 2011 and 2012:

19) What is the revenue effect of the growth component?

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20) What is the cost effect of the growth component for direct materials?

Explanation: A) 30,000/10,000 units = 3 sq feet per unit

500 additional units x 3sq feet = 1,500 additional square feet

1,500 additional sq feet x $10 per sq ft = $15,000 U

21) What is the cost effect of the growth component for conversion costs?

22) Overall, was Merrill's strategy successful in 2012?

A) No, because the selling price per unit decreased

B) No, because operating income decreased

C) Yes, because less direct materials were used

D) No, because more units were produced and sold

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